PPF, other small savings deposit interest rates may see an increase. Here is why
Premium‘The interest rate of the Public Provident Fund (PPF) may be hiked soon,’ said Amit Gupta, MD, SAG Infotech
With government securities (G-sec) yield going up, interest rates on Public Provident Fund (PPF) and other small savings deposits may go up soon. These rates are reviewed quarterly and are set for review by the end of this month. Currently, the interest rate of PPF stands at 7.1 per cent while that of government securities yield has already crossed 7.3 per cent. “The interest rate of the Public Provident Fund (PPF) may be hiked soon," said Amit Gupta, MD, SAG Infotech.
The interest rate on small savings schemes has not been revised for the last 27 months. The rates were last revised downwards in the April-June 2020 quarter.
Amit Gupta said that there is a direct relation between small savings investments and Government-Sec returns. “That’s why this increase in G-Sec yield will not only increase the interest rate on PPF but will also have an impact on the rates of small savings investments," he said.
Vivek Iyer, Partner, Grant Thornton Bharat said that globally rising inflation is a phenomenon that eats into the savings of citizens, globally. Monetary policy demands that interest rates be increased to manage inflation effectively. If the inflation is transitory, then the rate increases are not passed on to the savers.
However, inflation seems to be here to stay for sometime and increasing the PPF rates is the right approach keeping in the mind the inherent purchasing power that inflation erodes, he added.
Apart from PPF, other small savings products include National Savings Certificates (NSC), KVP, Time-deposits, Senior Citizens Savings Scheme, and Sukanya Samriddhi Yojana.
The rate of interest in these small savings schemes are distributed rates and are connected to market yields on government securities with an interval, and get fixed at quarterly intervals around and above the g-sec yields of comparable maturity and spread of 0-100 bps. “It is expected that with the rise in G-sec yield, investors in small savings products including National Savings Certificate, Time-Deposit, KVP, Public Provident Fund, Sukanya Samriddhi Yojana and Senior Citizen Savings Scheme may also see an increase in their investment rates," Amit Gupta added.
PPF, SSY and other small savings scheme latest interest rates
Public Provident Fund (PPF) - 7.1 per cent
National Savings Certificate (NSC) - 6.8 per cent
One-year term deposit scheme -5.5 per cent
Senior citizens' savings scheme (SCSC)- 7.4 per cent.
Sukanya Samriddhi Yojana -7.6 per cent.
Five year recurring deposit - 5.8 per cent
Savings deposits interest rate- 4 per cent
Term deposits of one to five years - 5.5-6.7 per cent
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